The auction site MadBid claims to offer users big savings on products such as iPhones.
Photograph: MadBid

Controversial auction website MadBid, which makes claims in full-page national newspaper adverts about brand new cars sold for under £500 or iPhones for less than £100, has been found guilty of misleading customers following an investigation by the Advertising Standards Authority.

The ASA also found against five other “pay per bid” auction sites after a probe into the sector that it found was “confusing customers and leaving them out of pocket”.

Pay-per-bid sites, sometimes known as penny auctions, are a type of timed online auction where consumers pay each time they bid on an item, usually through pre-bought credits.

Buyers have flocked to MadBid following extensive TV advertising, full-page adverts in free newspaper Metro, and glowing advertorials on the Daily Mirror and Daily Mail websites.

But the ASA examined five issues concerning MadBid practices, and ruled against the company on each one.

It found that MadBid failed to explain the cost of credits and how many were needed to bid. It did not explain that the winning bidder, after paying for credits, would also have to pay the auction price of the item and shipping costs.

The savings that customers could make compared with recommended retail prices were not backed by sufficient evidence, the ASA said.

It also admonished MadBid for advertorials that appeared to be editorial written by a journalist when they were in fact company marketing material. MadBid’s “countdown clock” also had the potential to mislead customers, the ASA found.

The five other sites that broke ASA rules were Swoggi, BidBid, LikleBid, Fastbidding and Bidwizeu.

The ASA said that, across the sector, it found “exaggerated claims, especially in relation to RRPs, savings claims and ‘sold’ prices for auctioned items”.

A separate investigation by the Guardian in 2015 found that MadBid buyers can end up paying twice the price for items, after unsuccessful bids, disappearing credits and problems getting refunds prompted a flood of complaints to the Guardian’s Money desk.